World View & Market Commentary. Forest first; Trees second. Focused on Real & Knowable facts that filter through the "experts" fluff and media hyperbole. Where we've been, what the future may hold and developing a better way forward.

Tuesday, March 31, 2009

Well, Tuesday’s gone, and what was a 200+ point rally went with the wind in the last half hour to leave the DOW up 86 points. The S&P finished up 1.3%, the NDX was also up 1.3%, and the RUT finished higher by 1.6%.

The XLF was stronger than the broad market, up 5.5%, the rally here got started on Barney Frank’s comments that mark-to-market may be modified and that the modifications may be retroactive. That sounds to me like how he handles his own diet, but that’s just me (just look the other way while stuffing). IYR was also fairly strong, mostly in sympathy with the financials, which held up relatively well the last half hour when the rest of the market was selling off pretty good.

Internally the advancers outpaced decliners on the NYSE by more than a 3 to 1 margin, and volume was 76.6% on the upside. The number of new 52 week lows fell to 9.

Let’s look at the big picture by zooming out a couple of years and looking at the MONTHLY candlesticks on the SPX. March was the largest up month since 2003, and on the bullish side you should observe that today marked the first monthly close above the lower monthly Bollinger after being beneath it for quite some time – and it was on higher volume which is bullish. That’s usually a buy signal, but of course the market has the true fundamentals to get through. The stochastic is very oversold on this timeframe, but can stay that way for a long time:

Being the end of the quarter, the late day selling could have been portfolio shuffling. Today is a tough read as it went a little further than I would have guessed. It sure looked like a run up to fill yesterday’s gap and a possible wave 2 up that got almost to a full 61.8% retrace. I was expecting a ‘B’ wave lower, and this could be the middle leg of a smaller abc that comprises the larger B wave? I don’t know, tomorrow’s action will be telling.

Let’s look at a 10 day, 10 minute SPX chart. I drew in a POSSIBLE down channel, but again it will need to be verified by tomorrow’s action. Earlier in the day I drew in the blue rising wedge and that turned out to be telling. Those usually retrace a ways, so the selling at the close may not have been it (futures are down after hours). On this chart the 10 minute stochastic is oversold on the fast, but the slow is not all the way yet and the 30 and 60 minute stochs are overbought and just coming down:

The SPX daily shows an inverted hammer inside the body of yesterday’s decline. The position of the hammer is odd and could be interpreted as being bullish, but in this case I’m not so sure. If you look at the SPY you will see that there is NOT an inverted hammer, it’s a black doji which looks much more bearish. Note how the fast on the daily stochastic is well out of overbought now and pointing down steeply, but the slow has yet to exit. It’s difficult to see a ton of upside when they are like that, but we’re definitely less overbought than we were. The most bullish aspect today is that most of the major indices regained and closed above their 50dma’s. First support for the SPX is right on the 50 at 789, and then the pivot below is at 768:

The DOW also produced an inverted hammer just above the 50. Volume was slightly higher than yesterday. Note the dark green line running across the chart that we closed just under? That’s the 20 year non-log uptrend line and the monthly bar closed just beneath it as if retesting from below. Again, we’ll need to see more:

Here’s what the candle looks like on the DIA. It’s black which means that it closed below the opening price but still in positive territory. The stem filled the gap and then it came back to rest just on top of the 50:

Here’s a chart of the XMI which is the Major Market Index. I’m showing it just to show that the market as a whole is right on the 50dma:

The XLF filled most of its gap from yesterday, but not all of it. I think most of the rally was due to Frank’s comments which we’ve actually heard before. I just don’t know how long you can keep fooling people with your bullshit games. Rule changes, possible rule changes, possible accounting changes… what crap. None of it makes their portfolios worth any more, it’s all just more obscuration. The truth can be found in the sale of the Hancock Tower today which went for HALF the bubble price. Still, it is interesting that the XLF opened just above the 50 and used it as support with slightly higher volume again. I think it must be time for Dimon to come out with some inane statement about profits again to keep the momentum going:

The Put/Call fell back to .81 today, showing that yesterday was a short term peak:

Overall a tough call for tomorrow. I’m leaning bearish but know that we may get a little more waffling before completing what should be a little deeper retrace than we’ve had so far. Today looked like a gap fill combined with a little window dressing shuffle. I’m still thinking we’ve broken the upchannel, which means wave B and that doesn’t come in a straight line either. Usually I would expect a three step abc. If so I would expect the third step is still to come… bring it!